Accountants' Handbook Special Industries and Special Topics 10th Edition_5

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Accountants’ Handbook Special Industries and Special Topics 10th Edition_530 2 PRODUCERS OR DISTRIBUTORS OF FILMS •in June 2000, effective for fiscal years beginning after December 15, 2000, and the FASB si-multaneously rescinded its Statement No. 53 in its Statement No. 139, “Rescission of FASBStatement No. 53 and Amendments to FASB Statements No. 63, 89, and 121.” This chapter pre-sents the accounting guidance in SOP 00-2.30.2 REVENUE REPORTING(a) BASIC REVENUE REPORTING PRINCIPLES. A film producer or distributor obtains rev-enue from sale or licensing of its films. An arrangement to license a single film or multiple films transfers a single right or a group ofrights to distributors, theaters, exhibitors, or others exclusively or nonexclusively in a particularmarket and territory under terms that may vary significantly among different contracts. Licensefees are commonly fixed in amount or based on a percentage of the customer’s revenue, whichmay include a nonrefundable minimum guarantee payable in advance or over the license period.Direct control over the distribution of a film may remain with the producer or may be trans-ferred to a distributor, exhibitor, or other licensee. A producer or distributor should report revenue from a sale or licensing arrangement of afilm when all of the following five conditions are met: 1. There is persuasive evidence of a sale or licensing arrangement. 2. The film is complete and has been delivered or is available for immediate and unconditional delivery in accordance with the terms of the arrangement. 3. The license period has begun and the customer can begin its exploitation, exhibition, or sale. 4. The arrangement fee is fixed or determinable. 5. Collection of the fee is reasonably assured. Reporting revenue should be deferred until all of the conditions have been met. A producer or dis-tributor that reports a receivable for advances currently due before the date revenue is to be reportedor that receives cash payments before that date should also report an equivalent liability for deferredrevenue until all of the conditions have been met. Even a producer or distributor that sells or other-wise transfers such a receivable to a third party should not report revenue before that date. Amountsscheduled to be received in the future based on an arrangement for any form of distribution, ex-ploitation, or exhibition should be reported as a receivable only when they are currently due or theabove conditions have been met, if earlier.(b) DETAILED REVENUE REPORTING PRINCIPLES(i) Persuasive Evidence of an Arrangement. The persuasive evidence of a licensingarrangement needed to report revenue is provided solely by legally enforceable documentationthat states, at a minimum, the license period, the film or films covered, the rights transferred,and the consideration to be exchanged. Revenue should nevertheless not be reported if there issignificant doubt about the obligation or ability of either party to perform under the terms ofthe arrangement. Verifiable evidence required is, for example, a purchase order or an online authorization. It shouldinclude correspondence from the customer that details the mutual understanding of the arrangementor evidence that the customer has acted in accordance with the arrangement.(ii) Delivery. Revenue should be reported no sooner than delivery is complete if the licensingarrangement requires physical delivery of a product to the customer or if the arrangement is silentabout delivery. In contrast, a licensing arrangement may not require immediate or direct physical delivery of afilm to the customer but instead provide the customer with immediate and unconditional access to a 30.2 REVENUE REPORTING 30 3 •film print held by the producer or distributor or authorization for the customer to order a film labora-tory to make the film immediately and unconditionally available for the customer’s use—known as a“lab access letter.” If the film is complete and available for immediate delivery, the requirement fordelivery has been met. A licensing arrangement may require a producer or distributor to change the film significantlyafter it is first available to a customer. If so, revenue should be reported only after those changes aremade. Significant changes are additive to the film, that is, the producer or distributor is required tocreate new or additional content, for example, by reshooting a scene or creating additional special ef-fects. Insertion or addition of preexisting film footage, adding dubbing or subtitles, removing offen-sive language, reformatting to fit a broadcaster’s screen dimensions, and adjustments to allow for theinsertion of commercials are examples of ...